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GumbyLearner

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Thought it was time to start a thread.

RCG is an Investment Holding company which owns the Athlete's Foot in Australia and New Zealand.

They have achieved like-for-like sales growth of 10% for the 4 months to October 09 compared to 08.

They also recently announced sales growth of 30% in their new re-furbished large format stores which they are progressively rolling out into 2010.

Even though most stores are mall based, they recently acquired the 3 North Sydney based Shoe superstore.

They also recently bought out the licence/royalty rights of the US parent for the next 249 years, which they claim will be appreciative to earnings to the tune of $1.2M a year and also enable them to increase floor product by roughly 150 new lines (that's a guestimate ). And also have made an agreement as the Sole distributor of Merrill footwear throughout Australia. Looks like they are expanding to wholesale to compliment their retail spread.

They have over $20M cash, no debt and what looks like good sales growth.
Tariffs on footwear have also been lowered to 5% which should also add to earnings into 2010 and beyond.

Currently sitting on 57cents a share. Management also claim that 70% of profits will be passed onto shareholders in the form of dividends.

Any thoughts?

DYOR
 
Re: RCG - RCG CORPORATION LIMITED

The SP's in a nice uptrend but is already 153% above its 12 month low!

And trading on an historical P/E of 21.4, yield around 2.5%.

Looks a little pricey for me.
 
Nice announcements today.

First interim divvy for the company.

Increased sales and profits like-for-like on 2008-2009.

DISC: I hold.
 
Massive volume today 16 million shares traded on no news or announcements.
Can anyone out there potentially suggest why? :walker:
 
This stock is still defying the retail downturn. Should also benefit from the strong Aussie dollar.

Athlete's Foot boots RCG into FY11
November 9, 2010 - 10:29AM

AAP

Clothing retailer RCG Corporation Ltd has reaffirmed its net profit guidance to rise by around a quarter in 2010/11.

"We reaffirm our earlier FY2011 profit guidance of net profit after tax (NPAT) of $8.4 million - $8.8 million," the company said at its annual general meeting in Sydney on Tuesday.

"This range represents an increase over (2009/10) of 22 per cent to 28 per cent."

RCG, which has The Athlete's Foot and Shoe Superstore in its portfolio, posted NPAT of $6.89 million in the 2010 financial year, up 30.6 per cent from a year before.

In financial year 2009/10, The Athlete's Foot posted its sixth straight year of like-for-like sales rising by more than eight per cent.

Sales in chain store The Athlete's Foot increased 10 per cent in the first four months of the current financial year, including the opening of three stores to take the chain's total to 145.

Like-for-like sales growth in the chain during the first four months of the 2010/11 financial year was six per cent, RCG said.

The company said RCG Brands would open its first Merrell flagship store at Castle Towers in north-western Sydney in December 2010.

Shares in RCG were untraded at 63 cents on Tuesday.
 
Nice announcement again today.

From Ragtrader

http://www.ragtrader.com.au/news/merrell-makes-australian-mark

It also announced that The Athlete’s Foot chain experienced like-for-like growth of 6.6 per cent for the five months to the end of November this year. This included a like-for-like growth in November of 10.3 per cent. It said growth for the first two weeks of December was in excess of five per cent compared to the same time last year.
 
Still defying the retail downturn.

Courtesy of Rag Trader
RCG reports "record" half-year profit

21 Feb 2011
http://www.ragtrader.com.au/news/rcg-reports-record-half-year-profit

RCG Corporation has reported nothing but good news with regard to the performance of its The Athlete's Foot and Shoe Superstore retail banners.

The publicly listed company revealed The Athlete's Foot experienced sales growth of 9.7 per cent in the six months to December 26, 2010, will total sales measuring $88.7 million. Like-for-like sales were up 6.1 per cent.

RCG's comfort footwear business, Shoe Superstore, also experienced a jump in sales in the same period, with total sales lifting from $1.95 million in the first half of 2009/10 to $2.3 million in the first half of 2010/11. Like-for-like sales grew by 18 per cent.

The sales figures pushed RCG's consolidated net profit after tax to $3.9 million, an increase of 35.1 per cent on the prior year and a reported "record" result.
**********************************************************************************


Forgot to add a 66.7% increase in the relatively new interim dividend. NOICE!
 
Bought into this not too long ago @ 33c...

$14.5mil cash position (against an $80mil market cap), no debt and one of the only retailers turning a profit in the current market.

And at my entry price, ~9% FF dividend .

Anyone else following this @ all?
 
Is anyone following this stock. I own. It's quite volatile and up over ten percent in the last two days. Price moves by up to 20% in the space of a couple of weeks. It looks like it may have bottomed though looking at the charts??? Could be a turn-around.
 

I follow it - picked it up earlier this year at an average price of 32c (bought a few more after the initial @ 33c)

I noticed that they have a HUGE cash holding, an awesome payout ratio and a very nice dividend as a result. Management are very good and quite conservative with what they do.

Lately, both fool.com.au and Roger montgomery have mentioned it, so it's being noticed a little more.

If you're a value investor, take a look @ their balance sheet and you'll be thoroughly impressed IMO... and that's without mentioning their ability to gain market share.

Tinhat - any viewpoints from a technical front?
 
Klogg said:
Tinhat - any viewpoints from a technical front?
Click to expand...

I'm not a techie or a trader. I'm a "value investor" too. I bought some for my SMSF. I'm trying to apply more technical analysis to make some better decisions on timing entry though - follow momentum. On the monthly chart the commodity channel index turned positive at the end of January and the Coppock indicator (which has a long lag) looks like it is turning around too (see attached). On the weekly chart the MACD has been rising since mid-January. So although the price has fallen since January, the indicators are contrary to the price since January. In any case we can say it is getting support at $0.31 at least.

 

Yeah, the 31c support seemed like a stand-out when I was buying, even with my limited knowledge of T/A.

Good to see I'm not the only one who thinks this is good value
 
I don't know much about this company - it has come up in some brief scans of the market in the past though.

Two things interest me - the cash balance, the lack of debt (and reasonable ROE).

You say that they have the ability to gain market share - how do you think that they can achieve this? What makes you think that they have an existent competitive advantage? Just curious for a starting point.
 

I often wondered this when I first found the stock as it was coming up in some of my searches. After doing abit of research, I found that they prided themselves on being a 'full-priced' retailer (which I thought was suicide in the current market), but later found that they had won awards for their innovative approach:
http://www.franchise.net.au/news/brw-award-makes-2011-an-even-bigger-year-for-the-a

After digging further, I found they spent a lot on:
- Training their staff to be able to fit someone's shoes correctly
- The sizing of their stores
- The offerings of each of their lines (Merrell, CAT, Athlete's Foot, etc)

And now having been in to a few stores, I can understand why. To someone who just walks in off the street and knows exactly what they want and how a shoe should fit, they won't buy from here. But for others who need shoes that fit right, they'll manage to make a sale.

Further to this, the company has also licensed themselves to sell CAT footwear/apparel in Australia, in effect feeding off the 'mining boom'. They're actually the first retailer to have licenses for both.

It's this constant evolution that keeps them in good stead IMO.
 

Also on the topic of market share, if you read the half-yearly announcement, Hammerschlag makes a mention to the downturn in the footwear sector (as per ABS data) decreasing by ~10%, yet their sales only dropped by ~4%, resulting in a gain of market share. (It's probably better explained within the announcement itself)
 
Thanks Klogg - the problem with all of these systems is that they're seem very easily replicable by a competitor (the expertise and pricing tactics). After all shoes are pretty much a commodity product. I work out the adjusted ROE (ignoring the historical losses - and using contributed equity + reserves - $64 million) to be around 12-13% which confirms this.

However - I do note the unique licences and obviously their branding. This is where the potential may lie. If these are strong, they could win market share.

The financials look pretty clean on my first glance. There doesn't seem to be any nasty surprises, but you would need to keep an eye on stock obsolence and such. The dividend isn't always paid out of operating cashflow, but this seems to be due to fluctuations in working capital and timing of payments. Be mindful that the cash buffer that they have seems to be decreasing, but on the same token they are re-investing a lot of this back into expansion.

I think I would require a bigger margin of safety for a business like this.

I will have a read of some "investor presentations" that they have released and see if it increases my understanding.
 
From what I've seen, management seem to want to return this cash to shareholders/expand over a period of time, as the cash amount is diminishing steadily over the past few years (as you mentioned). But, this is a good thing - holding too much cash as a safety blanket is just plain wrong and it should either be reinvested or returned to shareholders (and it also negatively impacts ROE).
Probably explains why they've got a 9% FF dividend yield atm (or close to).

In regards to adjusted ROE - how far back are you going with those calculations? I would normally go back 5 years or more, but given the change in management and in strategic direction (sale of king of knives and so on), I only went from 2008 onward (which is why I didn't get the same 12-13%).
I wouldn't normally just 'ignore' the previous years of a company, but in my opinion, this particular case warrants it.

I agree on the stock obsolescence - that is something that I took as an acceptable risk, much like any other retailer.

Would love to hear your thoughts after you get a chance to read investor presentations.
 
I did a bit more digging. As I expected to find, RCG is a company that has had a bit of a growth spurt and now is starting to find itself in a retail market in Australia that it is reaching much closer to saturation than ever before (and also tough economic conditions). The last few results have been really good, but that means that they now have a higher base on which they need to build growth. Each dollar of sales requires more effort in terms of costs and capital.

Return on Revenue ratios

%
2011 30.76
2010 32.78
2009 34.57
2008 24.07
2007 10.78
2006 17.03

2012HY 24.53
2011HY 29.55

This means that for every dollar of sales they made $0.30 in net income (before taxes) in 2011. Interestingly this is only $0.245 in the 2012 half year. They clearly need a catalyst to arrest this trend. They did mention that they have invested slightly ahead of the curve, but I guess that depends how much of that is management fluff and what is reality. Most brokers / analysts seem to think revenues & earnings will be flat over the next few years. Hard to argue with that in this environment, unless they can find a way to expand.

As I said, in a business like this, in these conditions I would need a much bigger margin of safety. Would probably prefer to look at DJS / MYR / JBH first if they extend their losses over the next year.


That's my perspective on it after having a further look - always assume I am wrong, I would love to hear some counter-arguments. Always enjoy the discussion.
 
Also forgot to mention, I don't 100% understand the cash flow, but it always pays to remember that you can be profitable in retail and still be losing cash. It's often hard to tell until it is too late. It all comes down to working capital and capex management (which aren't always reflected in the P & L). If someone can explain how this works in a business like this in more detail or point me in the right direction, I'd be much obliged.
 
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